Forex trading has become increasingly popular as a profession in Nigeria, especially among those with a financial background, because of its high liquidity, 24/7 availability, and low entry barrier.
Both recent college grads and seasoned professionals can benefit from the independence and flexibility offered by a job in FX trading. However, there are drawbacks to trading forex, including the significant risk and volatility involved.
In this article, we explore both the pros and cons of Forex trading for Nigerian traders.
The pros of Forex Trading
Affordable entry to the markets
In some cases, the costs of Forex trading in Nigeria can be rather small (brokerage and commissions). Most forex brokers benefit off the spreads between different currencies, so technically speaking, they don't charge any charges at all.
Nigerian traders can read useful reviews of existing brokers.
Access to high liquidity
The daily notional value traded on the forex market is more than that of any other financial market. This ensures the maximum degree of liquidity, making it possible to efficiently complete even the largest orders for foreign exchange transactions.
Because of this, tighter spreads can be implemented, which ultimately leads to more efficient pricing as price manipulation and price anomalies are rendered impossible.
Supports both long and short positions
Since the forex markets are open around the clock, day or night, traders can enter and exit positions as their schedules permit, which is especially useful for those who trade on a more speculative, intraday basis.
Only a small percentage of dealers actually conduct business exclusively outside of normal market hours. Due to the lack of advances tailored to the forex markets, these traders can choose to adopt high-volume, low-profit trading techniques to maximize their limited resources.
Long-term trading positions can last anywhere from a few days to a few weeks. In this regard, foreign exchange trading is remarkably flexible.
The cons of Forex trading
High risk of financial loss
High leverage in Forex trading allows for profit/loss exposure many times greater than the actual trading capital.
Without a solid understanding of leverage, an effective capital allocation strategy, and a firm grasp on one's emotions, forex trading can quickly spiral out of control and leave one with nothing but losses.
The risks of high volatility
Large losses are possible in the highly volatile FX market if you have no influence over macroeconomic and geopolitical developments. When things go wrong with a stock, investors can go to the company's management or to the government to get things fixed.
However, markets are open around the clock, which makes it tough to keep tabs on price changes and volatility. Maintaining tight stop losses in all forex trades and trading methodically according to a well-planned strategy is the best way to go about it.
Complicated pricing methodology
Foreign exchange rates are affected by a number of variables, the most important of which are global politics and economics.
The high degree of volatility in the forex markets may be traced back to the fact that most trades are made using only technical indicators. If the technicals are wrong, you will lose.